Dimla, Selene S.

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AAPRINCIPLES (INTERNAL AUDITING AND ASSURANCE PRINCIPLES)
1. What are Review Engagements?

The review engagement or sometimes called as negative engagement is a type

of engagement that involves limited investigation with narrower scope than audit. The
auditor provides limited or moderate level of assurance based on the precision of
financial statements prepared by professional accountants or CPAs. It is a negative
engagement or negative assurance as auditors only give assurance that nothing has
come to their attention that would show the financial information is not presented in
accordance with the accounting standards (Forsyth, 2016.)

Explain the following:

1.1. Reviews of Historical Financial Information

Reviews of historical financial information is a review concerning the financial

statements. The conduct of reviews over historical financial information permits the
auditor to identify that nothing has come to the auditor’s attention that will lead him to
believe that financial statements are not in accordance of the accounting standards or
financial reporting framework (Cabrera M., & Cabrera G., 2020).

1.2. Review of Interim Financial Information

This review is substantially less in scope than an audit conducted in accordance

with International Standard on Review Engagement and consequently does not permit
individuals to get assurance that they might become mindful to all significant matters
that may be identified in an audit. review of interim financial information does not
provide a basis for expressing an opinion about whether the financial statements are
presented fairly, in wholly material respects, in conformity with generally accepted
accounting principles. A review consists principally of performing analytical procedures
and making inquiries of persons liable for financial and accounting matters,

The auditor makes inquiries, and performs analytical and other review
procedures in order to cut back to a moderate level risk of expressing an inappropriate
conclusion when the interim financial information is materially misstated.

1.3. Examination of Prospective Financial Information

The actions or events that have not yet occurred and may not happen are the
prospective financial information. The examination of this financial information targets to
derive opinion on whether this kind of financial information is in conformity with the
stated assumptions. (International Auditing and Assurance Standards Board, 2005).
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2. What are Agreed-Upon Procedures? Explain its scope and objectives.

Agreed-upon procedures engagement is a type of engagement which auditor

implements procedures that are agreed upon in advance. This is a kind of engagement
where the auditor and appropriate third parties agree that the auditor will perform
specific procedures and report the factual findings. In here, auditors do not provide an
opinion over subject matters rather they only report findings based on the agreed
procedures performed on the subject matter. Thus, the conclusion over the subject
matter still lies on the hand of the clients.

Accountinguide (n.d.) mentioned that unlike review engagement, agreed-upon

procedures, auditors do not perform an examination. The form of reporting is out of
procedures and findings. For instance, the report of agreed-upon procedures may state
“we found no exceptions as a result of the procedures” or “we found no difference as a
result of the procedures”, etc. But it should never state “in our opinion…” or “nothing has
come to our attention…”. In addition, it is said that agreed-upon procedures is strictly for
the specified parties and not for public.

3. What is a Compilation Engagements? Explain its scope and objectives.

In here, professional accountant is engaged to utilize accounting expertise as

opposed to auditing expertise which includes the collection, classification and
summarization of financial information. This engagement reduces detailed data in the
form that is manageable and understandable without the need to test the assertions
underlying that information. The said procedures do not allow the professional
accountant to express assurance on the financial information. Despite of this, there are
still some benefit for the users of the compiled financial information as a result of the
involvement of the professional accountant through professional skill and care (Ireneo et
al., 2009).

4. Differentiate the following:

4.1. Review Engagements from Agreed-Upon Procedures

With review engagements, only limited assurance or moderate level of assurance

is given to the entity. The financial statements are analyzed to make sure the precision
of the information and its report is in negative form. In contrast, agreed-upon procedures
does not express assurance to the entity. The procedures that will be performed by the
auditor is already agreed by the involved parties.
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AAPRINCIPLES (INTERNAL AUDITING AND ASSURANCE PRINCIPLES)
4.2. Review Engagements from Compilation Engagements

In compilation engagement, the task of the auditor involves the collection,

classification and summarization of financial information of an entity. It does not make
conclusion on subject matter as the auditors do not provide an opinion over the report.
While in the review engagement, the auditor’s task involves the collection, classification
and summarization of the financial information of an entity. The auditor involved in the
engagement analyzes the information given and see if there is a material that could
make it misleading.

4.3. Agreed-upon Procedures from Compilation Engagement

Compilation engagement assists the management with the financial information’s

preparation and presentation to conform with the appropriate financial reporting
framework. Meanwhile, agreed-upon procedures includes only the procedures and
terms that are agreed in advance. The entity is also given a report that is based on
factual findings with regards of the financial information and there is no assurance and
conclusion given.

5. Why is a CPA / Accountant engaged to perform these services?

Not all engagements performed by accountants are assurance services but

rather they are also engaged in non-assurance services. Accountants have a lot of
various services to offer that is related to business. Since these services provides
financial information that can affect the decisions of different users, accountants are has
a vital role as they are the one that can make manageable and understandable
information like the financial statements. As we all know, business is tough and that is
why business people are turning to professionals to be able to validate the financial
information they have for them to make better decisions. With the accountants, the
credibility and reliability of a financial information will be improved which could result to
lower risk and loss.

 
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References:

Accountinguide. (n.d.). Agreed Upon Procedures. https://accountinguide.com/agreed-

upon-procedures/

Audit and Assurance Faculty. (2013). Assurance Review Engagements on Historical

Financial Statements.
https://www.icaew.com/-/media/corporate/files/technical/technical-
releases/audit/tech-0913aaf-assurance-review-engagements-on-historical-
financial-statements-revised-mar2019.ashx#:~:text=Review%20Historical
%20Financial%20Statements%20provides%20a%20framework%20for,to
%20guidance%20on%20the%20service%20they%20are%20providing.

Cabrera, M.E.B. & Cabrera, G.A. (2020). Principles of Auditing and Assurance
Services. (2020-2021 ed.). GIC Enterprise & Co., Inc

Forsyth, P. (2016). The Difference Between an Audit and a Review Engagement.

https://strauss.ca/difference-audit-review-engagement/

International Auditing and Assurance Standards Board. (2005). The Examination of

Prospective Financial Information.
https://www.ifac.org/system/files/downloads/b013-2010-iaasb-handbook-isae-
3400.pdf

Ireneo, J., Ireneo, S. & James, G. (2009). Auditing & Assurance Principles. (2009 ed.).
Quezon City, Philippines: Good Dreams Publishing